Who Honors Your Warranty?

Is Your Computer an Appliance?

There appears to be a trend in the industry amongst resellers on the internet which is very disturbing to the manufacturers, and to me as well. This is the practice of providing warranty service on a product purchase for only the first 30 days, then claiming the manufacturer must handle all warranty issues beyond that. Many of these resellers apparently are not computer professionals, but are people with some money and perhaps have built a few computers who have decided to make some ‘easy’ money on the internet.

Many people seem to have accepted this practice without much question, and complain about the manufacturer when warranty problems arrive. There are even hardware sites which are presenting ‘consumer complaints’ against manufacturers, such as Anand’s Tech Guide. I believe that since many people have experienced this kind of ‘service’ through department stores for appliances, they expect that computers and hardware should be handled the same way – but is this a valid comparison?

I would like to present the opinion that a computer is much more than an appliance, just as your automobile is. If you have a warranty issue with your car or truck, would you expect to have to ship it back to the manufacturer to have it fixed or replaced? Of course not. You would take it back to your local dealer and expect that they will take care of it. Your automobile is an integral part of your everyday life that is difficult to do without. For many people, this is also true of their computer.

For the millions of users who run their businesses, balance their checkbooks and pay bills, track their financial investments, perform research, and the myriad of other everyday tasks that the computer is used for, being without their computer for more than a few days has a very big impact. Some individuals simply cannot do without their computers for more than a day, just as some cannot do without their car for very long.

The Manufacturer’s Dilemma

When a manufacturer of computer equipment sets up shop and decides to sell a product, the end user is not who they are directly targeting. The traditional customers of these manufacturers have been the OEMs and local system integrators. These companies and individuals would purchase the component and install it into a computer, which end-users would purchase. Any support or warranty issues would be handled by these OEMs and integrators.

Since the manufacturers have typically only had to deal with a limited number of customers who were primarily skilled professionals, there has not been a need to have a large (and expensive) support staff. Those who would provide the support would typically be the engineers of the product themselves. Many of these engineers don’t have the ability to deal with end users that don’t understand the technical details, and expect the person calling for support to be able to perform advanced diagnostics.

The original ‘upgrade’ market consisted primarily of people with electronics backgrounds who would purchase via the ‘spot’ market (now called the ‘gray’ market) and did not expect any support. These were hobbyists that knew how to use a multi-meter, soldering iron and might have a small pile of components that no longer functioned, but could be used for parts.

As PCs became easier and easier to upgrade, more inexperienced people began to want to try their hand at this hobby. Eventually manufacturers realized that retailers needed an authorized channel to purchase components from. To do this, most manufacturers set up the distribution channel where retailers would buy from authorized distributors if they wanted any warranty support.

Until recently, the rules have been that the manufacturer provides warranty and support service *only* to their direct customers (the distributors), who in turn provide warranty and support service to their customers (the resellers). The end user has been expected to receive warranty and support service from the reseller from whom he/she purchased. This provides a nice, clean and organized model of business where the cost of support is shared by the distribution/retail channel, and in return the distributors and resellers get a nice discount on the items.

The Reseller’s Dilemma

The idea of having a retail channel was originally a good one. Small integrators could purchase items with a manufacturer’s warranty so they did not have to absorb the cost of product problems. While their cost was slightly higher than from the ‘spot’ market, the cost of replacing defective products was reduced.

The profit margins were also fairly good, because parts could be sold relatively cheaply, but a premium could be charged for services that the end user could not perform for himself/herself. Many integrators continued to use gray market components due to the lower cost, which would allow them to compete more effectively or make bigger profits. Unfortunately, this set up a situation that has now created a big problem in the industry

As components have become easier and easier to install it is becoming much more difficult to charge for services. Most end users realize that replacing a video card or hard drive is a relatively simple matter that shouldn’t cost an arm and a leg. More and more frequently, we are seeing that end users prefer to handle these chores themselves. On the other hand, everyone expects that the cost of the components will continue to drop, so that even while the service income evaporates for the resellers, the profits on the components are extremely low. Price comparisons are based upon gray market prices rather than retail prices, which makes it even more difficult for the ‘authorized’ retailers to make any reasonable margins

As these margins become smaller and smaller, retailers have to look to ways of eliminating some of their costs. I have seen comments by some fairly ignorant people in the newsgroups who claim that a good businessman can figure out how to sell a product at a low margin yet still provide good service and support – all the while making a profit. The reality is that a good businessman maximizes his profits by eliminating as many expenses as possible. Unfortunately, in this market it means eliminating support and services that do not directly contribute to income.

What these resellers are doing is to move the costs of support and warranty service away from themselves and put it squarely on the shoulders of the manufacturers, who are typically not set up to provide this kind of service. It also puts the end user into quite a difficult situation.